Commissioners of Customs and Excise v Bassimeh
| Jurisdiction | England & Wales |
| Judgment Date | 20 November 1996 |
| Date | 20 November 1996 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Evans, Henry and Aldous LJJ.
Rupert Baldry (instructed by Barry Phillips & Co) for the appellant.
Nigel Pleming QC (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
C & E Commrs v Le Rififi Ltd VAT[1995] BVC 55
Don Pasquale (a firm) v C & E Commrs VAT(1990) 5 BVC 76
Georgalakis Partnership VAT(LON/92/1692) No. 10,083; [1993] BVC 958
Georgiou (t/a Marios Chippery) v C & E Commrs VAT[1996] BVC 236
House (t/a P & J Autos) v C & E Commrs VAT[1996] BVC 116
International Language Centres Ltd v C & E Commrs VAT(1983) 1 BVC 545
SJ Grange Ltd v C & E Commrs VAT(1978) 1 BVC 210
Value added tax - Penalty - Penalty imposed on company for dishonest conduct - Company's liability assessed on director whose dishonesty contributed to company's default - Penalty for individual periods not specified - Whether assessment on director properly assessed and notified - Finance Act 1985, s. 13(1), 21(2), (3) (Value Added Tax Act 1994, s. 60(1), 76(1), (3)); Finance Act 1986, s. 14 (Value Added Tax Act 1994, s. 61).
This was an appeal by Mr Bassimeh ("the appellant") against the judgment of Sedley J ([1995] BVC 373) allowing Customs appeal from the decision of the VAT and duties tribunal.
The issue was whether, where a penalty for evasion of VAT covering a number of prescribed accounting periods by a company was assessed personally on a director under s. 14 of the Finance Act 1986, it was necessary to break the assessment down into separate accounting periods and state the separate amounts in notifying the director of the assessment.
The appellant was a director of a company which operated a restaurant. Its trading figures were consistently understated for VAT purposes and on 31 December 1991 Customs sent a formal "Notice of Assessment(s)" of a penalty under s. 13 of the Finance Act 1985, s. 13. A total figure covering 18 prescribed accounting periods was given under the heading "Summary of Assessment(s)" and the notice was supported by seven pages of calculations, showing the amount due in respect of each three-month accounting period from June 1983 until 31 October 1990.
On 30 June 1992, by which time the company was in liquidation, two letters were sent to the appellant. The first letter was stated to be a notice under s. 14(2) of the 1986 Act notifying the appellant of a personal liability in respect of part of the penalty imposed on the company, being 100 per cent of the penalty for which the company was liable for the period from 1 May 1986, when s. 14 of the 1986 Act came into force, to 31 October 1990.
The second letter, stated to be under s. 13 of the 1985 Act and s. 14 of the 1986 Act, notified an assessment of civil evasion penalty apportioned to a director in order to enforce recovery of the penalty made payable by service of the notice contained in the first letter. Those letters gave total figures only, making no attempt to break down the total figure into quarterly tax periods which made up the stated period from 1 May 1986 to 31 October 1990.
The appellant contended that the words in s. 14(3), "and the amount of that penalty may be assessed and notified to him accordingly under section 21 [of the 1985 Act]" meant that the assessment of the penalty and its notification had to be in the manner prescribed by Finance Act 1985, s. 21. That provision imposed an obligation on Customs to make a separate assessment in respect of each prescribed accounting period for which the alleged tax evaded was due. Thus, there had to be a separate assessment specified in the notice for each prescribed accounting period for which the tax alleged to have been evaded was due.
Customs accepted that the assessment had to be made by reference to the relevant prescribed accounting periods, but that they only had to notify the person against whom the penalty was assessed of its amount and the overall period or periods to which it related. Since under Finance Act 1986, s. 14(5), a director could only appeal against his own liability to be assessed and not appeal against the basic penalty imposed on the company, it was not necessary to include the details in the notice to the appellant.
Held, dismissing taxpayers appeal:
1. A distinction was to be made between the basic penalty imposed on the company and the portion (which might be the whole) assessed on the director. It was the service of a notice which made a director personally liable to a penalty. The crucial words in s. 14(3) of the 1986 Act were "and the amount of that penalty may be assessed and notified to him accordingly under section 21 …" "That penalty" could only refer to the penalty for which the director became liable when the statutory notice was served on him under s. 14(1). It was the amount of that penalty which must be "assessed and notified to him accordingly under section 21".
2. (Aldous LJ dissenting) Although the penalty had been assessed by reference to separate tax quarters, a notice given under s. 14(1) of the 1986 Act was not invalid merely because it stated only what "portion" of the company's "basic penalty" (in this case the whole of the penalty in respect of the period from 1 May 1986) was sought to be recovered from the director. A valid notice under s. 14 of the 1986 Act had to inform the director that a valid assessment had in fact been made. If it failed to do so, it might only be for one of two reasons. Either the notice was defective because it did not record accurately what was done; or the assessment was not carried out on the correct basis although the notice accurately reflected it. A director was entitled to know, and to appeal against, an assessment made against him under s. 14 of the 1986 Act, but he was not entitled to appeal against the amount of the company's "basic penalty" and there was no requirement that he should be notified how it was made up. Nor did the director need to know the quarterly figures in order to know what assessment had been made against him.
3. It would be unrealistic to regard the present assessment as 18 separate assessments. No reference was made to separate quarters because none was necessary. There was one penalty, in respect of the total period during which there was dishonest evasion of tax. It would not be a sensible construction of the legislation to sub-divide the total figure into 18 quarterly figures and then to aggregate them to produce the same amount.
Per Aldous LJ: A taxpayer would only be given fair and adequate notification of the basis on which he had been assessed if he were given the details of the assessment in question. In the case of an assessment under FA 1986, s. 14, that was the assessment on the company under FA 1985, s. 13, which under s. 21(2), had to be made in respect of separate accounting periods.
Evans LJ: The taxpayer, Nizar Bassimeh, was a director of Al Omaraa Ltd which operated a restaurant in Queensway, West London. The company was registered for VAT from 3 June 1983. Its trading figures were consistently understated for VAT purposes and on 31 December 1991 Customs sent a formal "Notice of Assessment(s)" claiming a net amount due to them of £129,904 plus a small figure for default interest. This figure was given under the heading "Summary of Assessment(s)" and the notice itself was supported by seven pages of calculations, showing the amount due in respect of each three-month accounting period from June 1983 until 31 October 1990.
Further notices dated 30 June 1992 were served on the company, which by then was in liquidation, and on the taxpayer, who was one of three directors. These notices required the payment of civil penalties under s. 13 of the Finance Act 1985, as regards the company, and s. 14 of the Finance Act 1986, as regards the taxpayer. It was alleged that the company's evasion of tax was dishonest and that its conduct was attributable to the dishonesty of the taxpayer. The precise method of calculating the amounts of the penalties depended upon the terms of s. 13 and 14, but a general description is as follows. Section 14 (of the 1986 Act) which affected the taxpayer only came into force on 1 May 1986. He was notified that he was liable for a total figure of £65,304 in respect of the whole period after that date, until 31 October 1990. This comprised 18 quarterly tax periods. The penalty assessed against the company under s. 13 was the total amount of tax due for the period from 1 May 1985, which was £88,754, but the sum due from the company, after deducting the penalty claimed from the taxpayer, was the net figure of £23,450.
The taxpayer appealed to the VAT tribunal on numerous grounds, and he appeared in person at the hearing. For reasons which are not material to this appeal, the amount claimed as a penalty was reduced to £27,031.38. In the course of the hearing the tribunal raised a question of law as to the validity of the assessment and notice as regards the taxpayer under s. 14. In its decision released on 14 September 1994 the tribunal held that the assessment and notification were invalid, and the appeal was allowed on that ground.
Customs' appeal to Sedley J ([1995] BVC 373) on this issue succeeded. He ordered that the amount of the penalty recoverable from the taxpayer was "no more than" the reduced sum fixed by the tribunal, although Customs had also appealed against that ruling and after hearing full argument the judge held at p. 383 that the tribunal had erred in that respect also. We have not been concerned with that issue because Customs disavow, as they did below, an intention of recovering more than the reduced amount (see p. 375).
It now becomes necessary to quote the letters which served as notices given pursuant to s. 13 of the 1985 Act and s. 14 of the 1986 Act on 30 June 1992.
Sirs
NOTICE OF A LIABILITY TO A PENALTY UNDER SECTION...
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